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Georgia Resident Pleads Guilty to Charges of Operating Unlicensed Money Transmitting Business
On October 13, the DOJ announced that a Columbus, Georgia resident pleaded guilty to one count of operating an unlicensed money transmitting business. According to the DOJ, between February 2013 and March 2014, the individual unlawfully owned, operated, and managed multiple money transmitting companies throughout the Columbus area, offering check-cashing services. The individual allegedly knew that he was required to register his company with FinCEN and with the state of Georgia, but failed to do so. Scheduled to face sentencing in January 2016, the individual faces a statutory maximum sentencing of five years and has agreed to a forfeiture order of more than $1,300,000.
Owner of Mortgage Company Sentenced to Serve More Than 11 Years for Role in $64 Million Mortgage Fraud Operation
On September 24, the DOJ released a statement regarding the sentencing of the owner of a Florida mortgage company for allegedly organizing a mortgage fraud scheme. In July 2015, the owner, along with his business partner and a senior underwriter for the mortgage company, pleaded guilty to the mortgage fraud scheme that resulted in $64 million in losses to the FHA. The August 2014 indictment stated that the three individuals edited borrowers’ loan applications, altering important information so that they appeared to be qualified for FHA loans when, in fact, they were not. As a result of the September sentencing, the owner of the company will pay more than $64 million in restitution and forfeit $8 million in illegal profits. The owner’s business partner was sentenced to serve 41 months in prison; in addition, he will pay more than $7 million in restitution and forfeit $400,000 in illegal profits. The company’s underwriter will pay more than $24 million in restitution and serve 51 months in prison. A total of 24 defendants were charged in the case, which was jointly investigated by the HUD-OIG and the DOJ.
DOJ Unveils New Policy on Individual Liability in White-Collar Prosecutions
On September 9, the Department of Justice (DOJ), issued a policy memorandum concerning DOJ’s goal of holding individuals accountable for corporate fraud or other misconduct. While some of the guidelines set forth in the memorandum are statements of practices already being followed by DOJ, or by specific U.S. Attorney’s Offices, some of the measures are new and reflect an enhanced focus on DOJ’s goal of holding individuals criminally or civilly liable for corporate wrongdoing. The memo sets forth “six key steps” to accomplish this goal and further DOJ’s underlying policies of deterring future illegal activity, incentivizing change in corporate behavior, holding proper parties responsible for their actions, and promoting public confidence in the justice system.
First, the memo provides that, to be eligible to receive any credit for cooperating with the government in a civil or criminal investigation, a company must completely disclose to DOJ all relevant facts about individual misconduct, regardless of the individual’s position, status or seniority at the company. If a company provides incomplete information about individual employees’ misconduct, then the company’s cooperation will not be considered a mitigating factor in a criminal investigation and will not support, in the case of a prosecution, a cooperation-related reduction at sentencing. Likewise, where the company is not completely forthcoming about individual wrongdoing in a civil investigation, DOJ will not consider the company’s cooperation in negotiating a settlement agreement.
Second, the memo provides that both criminal and civil investigations should focus on individuals from the outset of the investigation, in order to discern the full extent of alleged misconduct, increase the likelihood of cooperation by individuals with knowledge of the misconduct, and maximize the chances that resolution of the investigation will include civil or criminal charges against both the company and culpable individuals.
Third, the memo emphasizes that DOJ criminal and civil attorneys should be in routine communication with one another, so that the DOJ can consider the full range of potential remedies to address alleged misconduct by individuals.
Fourth, the memo provides that, absent “extraordinary circumstances,” no corporate resolution will provide protection for criminal or civil liability for any individuals. Fifth, the memo states that DOJ attorneys should not resolve civil or criminal investigations of a corporation without a “clear plan” to resolve related individual cases. In addition, if a decision is made not to prosecute or proceed civilly against individuals who committed the misconduct, DOJ attorneys must memorialize and submit for approval the reasons for that decision.
Finally, the memo provides that civil prosecutors should consistently focus on individuals as well as the company, and evaluate the decision whether to sue an individual based on considerations beyond the individual’s ability to pay. The memo notes that, while DOJ attorneys may validly consider an individual corporate wrongdoer’s ability to satisfy a judgment in determining whether to pursue an action against that person, DOJ attorneys also should consider other goals and concerns in making this determination, including such things as the seriousness of a person’s misconduct, the person’ s past history, the ability to obtain and sustain a judgment, and the long-term deterrent effects of holding an individual accountable.
Former Ohio Deputy Treasurer Extradited to Serve 15 Years in Prison for Role in Bribery and Money Laundering Scheme
On August 26, a former deputy treasurer of Ohio was extradited from Pakistan to serve a 15-year prison term in the U.S. for his involvement in a bribery and money laundering scheme spanning from January 2009 through January 2011. According to his 2013 guilty plea, the former deputy treasurer misused his position as a state official to direct official state of Ohio business to a securities broker in return for bribes. With the assistance of a Chicago businessman, the deputy treasurer concealed the broker’s payments by funneling them through (i) accounts connected to a landscaping business; and (ii) an attorney and lobbyist who was both a friend and business partner. The broker, who paid more than $500,000 in bribes, collected roughly $3.2 million in commissions as a result of 360 securities trades on behalf of the Office of the Ohio Treasurer.
Sentenced in abstentia on December 1, 2014 by a Ohio federal judge, the former state official was also ordered to forfeit $3.2 million in illegal profits. The securities broker, lobbyist, and the Chicago businessman were each sentenced in late 2014 to serve 45 months, 48 months, and 18 months in prison, respectively, for their roles in the scheme.
DOJ and SEC Announce Parallel Action Against Former Investment Banking Analyst and Two Individuals for Alleged Involvement in Insider Trading Scheme
On August 25, the DOJ unsealed an indictment charging three defendants each with (i) one count of conspiracy to commit securities and tender offer fraud; (ii) 13 counts of securities fraud; (iii) 13 counts of tender offer fraud; and (iv) three counts of wire fraud. In a parallel action, the SEC filed a complaint in the Central District of California against the same three individuals, asserting that the three individuals violated certain provisions of the Securities Exchange Act by participating in a scheme that involved “coordinated, illegal trading in stock and stock options of two separate companies that participated in merger activity” in which the same investment bank played an advisory role. According to the SEC, having learned of impending acquisitions involving two of the investment bank’s clients and other companies, one of the investment bank’s former analysts allegedly provided information regarding the transaction to a friend before any public announcements were made. The friend then communicated the information to a third individual, and the two made a series of trades in the two companies’ securities. When the acquisitions were publicly announced, both companies’ stock prices increased, resulting in profits of more than $670,000 for the two individuals on the receiving end of the former analyst’s inside information. The SEC’s complaint seeks a final judgment ordering the three defendants “to pay disgorgement of their ill-gotten gains plus prejudgment interest and penalties, and permanent injunctions from future violations of [certain] provisions of the federal securities laws.”
Orthofix Deferred Prosecution Agreement Extended for Two Months
In a recently-filed status report, the DOJ and medical device manufacturer Orthofix revealed that the company’s Deferred Prosecution Agreement (DPA) will be extended by two months. The DPA was due to expire on July 17, 2015, but the status report states that Orthofix agreed to the extension in June to give DOJ “additional time to (1) evaluate Orthofix’s compliance with the internal controls and compliance undertakings in the DPA and (2) further investigate potentially improper conduct the company disclosed during the term of the DPA.” The report continued that DOJ intended to complete its investigation in August and inform Orthofix “of its proposed course of action shortly thereafter.”
Orthofix entered into the DPA on July 10, 2012 to resolve allegations that a Mexico-based subsidiary paid bribes to employees of Mexico’s government-operated health system (see prior FCPA scorecard coverage).
Earlier this year, another medical device manufacturer, Biomet, announced that its DPA would be extended for one year after it disclosed additional potential FCPA violations to the DOJ and SEC.
Mortgage Company Owner and Others Plead Guilty to Mortgage Fraud Scheme Involving FHA-Insured Loans
On July 14, the DOJ, in coordination with HUD’s Office of Inspector General and the U.S. Attorney’s Office for the Southern District of Florida, announced that a Miami-area real estate developer and mortgage company owner, his business partner, and a senior underwriter with the mortgage company each pleaded guilty to a mortgage fraud scheme that resulted in $64 million in losses to the FHA. According to the August 2014 indictment, the three defendants knowingly participated in a scheme to alter important information contained in potential borrowers’ loan applications so that they appeared qualified for FHA-insured loans when, in reality, they were not qualified. According to the DOJ, the developer/owner and his business partner “admitted to pressuring their employees to approve and close loans using earnings statements and verification of employment forms that made it appear as if the borrowers had higher incomes and more favorable work histories than they actually did, and documents falsely improving or explaining borrowers’ credit histories.” The senior underwriter admitted to providing false information to her co-workers and endorsing borrowers’ applications when she knew that they did not qualify for the loans. Eventually, many of the loans went into foreclosure and HUD was obligated to pay the outstanding loan balances to the financial institution investors. To date, 25 individuals have pleaded guilty to offenses related to this mortgage fraud scheme.
SEC Settles with Post It-Eating Middleman in Law Firm Insider Trading Case
On July 13, the SEC announced a settlement with Frank Tamayo, who acted as a middleman in a $5.6 million insider trading scheme. According to the SEC, a law firm clerk used the firm’s internal databases to access confidential information concerning clients’ pending corporate transactions, and tipped Tamayo at coffee shops to the pending transactions. Tamayo wrote ticker symbols of target companies on a Post-It note or napkin, met a stockbroker in Grand Central Terminal’s main concourse, flashed the Post-It or napkin to the stockbroker, and then immediately chewed up and swallowed it. Tamayo also conveyed additional information about the pending deals, in total passing information on over a dozen companies. The stockbroker then traded in the shares of the subject companies on behalf of the co-conspirators and other customers. The settlement involved no monetary penalties based on Tamayo’s extensive cooperation with the SEC. A $1 million disgorgement as part of the settlement can be satisfied by forfeiture or restitution in a parallel criminal proceeding pending in the District of New Jersey, where Tamayo has already pleaded guilty.
DOJ Sentences Real Estate Developers to Prison for Involvement in Alleged Mortgage Fraud Scheme
On July 8, the DOJ announced the prison sentences of three real estate developers for their roles in an alleged mortgage fraud scheme that resulted in over $27 million dollars in losses. Convicted in November 2014 of wire fraud, bank fraud, and conspiracy, the three individuals “engaged in a scheme in which they facilitated payments to straw buyers as well as the submission of false loan applications on behalf of the straw buyers to secure mortgages to purchase units” in the condominium developments they controlled or managed. Post-sale, the individuals retained profits from the sales and control over the units. According to trial evidence, two of the individuals funneled some of the loan proceeds to shell companies to pay the buyers’ closing cash obligations and mortgage payments. Shell companies were also used to divert over $2 million in fraudulent funds to bank accounts in Switzerland and Liechtenstein. Because the defendants and their co-conspirators were eventually unable to make mortgage payments, dozens of condominium units entered into foreclosure, causing the FHA, Freddie Mac, Fannie Mae, and other private lenders a combined loss of $27.8 million. In addition to the varying prison sentences, U.S. District Judge Seitz ordered each defendant to forfeit over $35 million in fraudulent proceeds and to pay over $21 million in restitution.
DOJ Reaches Agreement with Government Contracting Company and Former VP over Alleged Bribery
On June 16, the DOJ entered into a non-prosecution agreement with a Florida-based defense and government contracting company to resolve allegations that it conspired to bribe Kuwaiti officials for the purpose of securing a government contract. In connection with his alleged involvement in the bribery scheme, the company’s former vice president (VP) also pleaded guilty to one count of conspiracy to violate anti-bribery provisions of the Foreign Corrupt Practices Act (FCPA). In 2004, Kuwait’s Ministry of the Interior initiated the Kuwait Security Program, a homeland security project intended to “provide nationwide surveillance for several Kuwaiti government agencies, primarily through the use of closed-circuit television cameras.” The program was divided into two phases: (i) the planning and feasibility period; and (ii) the installment of equipment, methods, and programs suggested during the first phase. According to the non-prosecution agreement, the company and its former VP schemed to ensure that the company won both the Phase I and II contracts. Specifically, the company, its former VP, and other senior employees established a shell company to bid on Phase I, giving the company an advantage in the Phase II bidding, which contained the more lucrative revenues. The shell company secured the Phase I contract for approximately $4 million, and half of those funds were allegedly diverted to a consultant who bribed Kuwaiti officials to assist the government contracting company in obtaining the Phase II contract. Admitting to the DOJ Criminal Division’s charges and cooperating with the federal investigation, the company has agreed to (i) pay a $7.1 million penalty; (ii) conduct a review of its current internal controls, policies, and procedures, and make any necessary changes to ensure that its record keeping and anti-corruption compliance program are sufficient; and (iii) report annually to the Criminal Division and the U.S. Attorney’s Office of the Eastern District of Virginia on the remediation and implementation of its compliance program and internal controls, policies, and procedures.